Market reaction to the USDA June crop production report was bearish when the numbers were released in the middle of the day Wednesday, but some analysts say the bearish feel shouldn’t last long. Analyst Tom Fritz at EFG Group in Chicago said the bearish tone for corn was set when the trade saw the final carryout projections.
“USDA thinks that the new crop carryout will be 1.949 billion bushels,” Fritz said. “That’s down roughly 55 million bushels from their previous estimate, but more importantly the trade was looking for a number of 1.758, so based on trade expectations we’re 190 million bushels greater than what the trade was looking for. That’s why you saw the bearish reaction.”
Further breakdown showed no change in planted and harvested acres and corn yield was lowered one and a half bushels.
As for actual corn demand numbers, “they lowered feed use by 125 million bushels and raised ethanol usage by 50 million bushels. Exports they left at unchanged. So the bottom line is, based on these numbers, you’ve got a big corn crop coming at you. But we also know we have the variables; prevent plant, washed out acres, all the way down the line.”
USDA left U.S. ending soybean stocks unchanged from the May estimate and soybean yield was unchanged.
“The bottom line for both cases is bull spreads in corn should continue to work, bull spreads in beans should continue to work. In other words the old crop scenario remains extremely tight so your bull spreads are going to continue to work.”
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